As of: February 8, 2024, 11:44 a.m
By: Lisa Mayerhofer
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There are signs of a serious crisis in the commercial real estate market in the USA.
(Symbolic image) © Andreas Arnold/dpa
There are signs of a serious crisis in the commercial real estate market in the USA.
German banks are also coming under pressure because of this.
Memories of the financial crisis of 2008 are awakening - rightly so?
Munich - A consequence of the corona pandemic is currently hitting the USA with quite a lot of force - and is having an impact as far away as Germany: The commercial real estate market has practically collapsed and the new real estate crisis is not only affecting US banks.
Home office trend in the USA is causing a real estate crisis
The trend towards working from home has become more widespread in the USA than in Germany, and many offices are empty.
In January 2023, office occupancy in the ten largest cities in the USA was only around 50.4 percent, reports the
Washington Post
.
And there is no apparent upward trend.
The owners of the affected properties - mostly banks - now face several major problems: They have to deal with a rise in interest rates, higher vacancy rates and a wave of loans that need to be financed this year.
This brought, among other things, the shares of the US regional bank New York Community Bancorp (NYCB) to their knees.
The rating agency Moody's downgraded the bank's credit rating to "junk" on Tuesday evening - which means that there is a high risk of default.
German Pfandbrief bank hit by real estate crisis
Other banks that are invested in the US commercial real estate market are also coming under pressure.
This also includes German banks such as Deutsche Bank and Deutsche Pfandbriefbank (pbb).
The latter announced on Wednesday that it had landed at the lower end of its earnings forecast, which had been drastically reduced in November, due to a drop in profits to 90 million euros before taxes last year.
The reason for this is that risk provisions doubled in the fourth quarter: pbb set aside a total of 210 to 215 million euros for possible loan defaults last year; at the end of September it was only 104 million.
“Despite these burdens, pbb remains profitable thanks to its financial strength – even in the biggest real estate crisis since the financial crisis,” explained the bank in Garching near Munich.
In the fourth quarter, however, it slipped just into the red.
After the announcement, pbb shares fell by up to six percent to an all-time low of 4.65 euros.
The news from the US news service Bloomberg that analysts at Stanley Morgan had recommended selling bonds from Deutsche Pfandbriefbank because of its involvement in the US commercial real estate market did not help.
The portal relies on “people familiar with the matter,” but Morgan Stanley did not want to comment on the report.
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Deutsche Bank: “We will not be able to completely avoid losses”
Deutsche Bank shares have also come under pressure due to the real estate crisis.
These temporarily lost more than four percent of their value on Wednesday, reports the
Handelsblatt.
The bank's portfolio on the US real estate market amounts to 17 billion euros, 41 percent of which is commercial real estate.
This means that Deutsche Bank has the highest amount invested there among the domestic institutions.
“We believe that our portfolio is of relatively high quality, but we will not be able to completely avoid losses either,” said CFO James von Moltke at the recent annual press conference, according to the newspaper.
He admitted that defaults in the first and second quarters of 2024 “will continue to be higher than we would like”.
“There could be more pain in commercial real estate.”
Other German banks such as Aareal Bank, Landesbank Hessen-Thüringen (Helaba) and Landesbank Baden-Württemberg are also active in the US commercial real estate market.
This brings back memories of the global financial crisis of 2008.
At that time, German state banks stumbled because of their investments in subprime mortgages in the USA, which led to billions of euros in write-offs.
“You have to be careful because you don’t know exactly where the bottom is,” Raphael Thuin, head of capital market strategies at Tikehau Capital, told
finanzmarktwelt.de
.
“We recognize there could be more pain in commercial real estate.”
“There are serious concerns in the US CRE market,” Paul van der Westhuizen, credit strategist at Rabobank, told the portal.
“This is not a problem for the larger US and European banks, but the smaller German banks that specialize in real estate are suffering a little.
At the moment, however, it is more of a profitability problem for them than a solvency problem.
They have sufficient capital and are less exposed to the risk of an outflow of deposits than pure retail banks.”
With material from Reuters